Friday, February 19, 2016

What is Asymmetric Compensation?

For one, it's a term I have found myself increasingly referring to, in the last year or so. This form of compensation has evolved over long time periods, through the widespread use of money. Increasingly, asymmetric compensation has become associated with skills arbitrage in the marketplace. As money began to substitute for more specific forms of resource exchange, coordination capacity among ever greater numbers of groups became possible. Asymmetric compensation follows already existing wealth capacity, and is representative of wage and income in (recorded) general equilibrium conditions.

Asymmetric compensation is further defined by an emphasis on specific skills capacity, instead of aggregate skills potential. While it has been an incredible tool for spontaneous economic activity and societal progress, limits do exist - in terms of long term growth of organizational capacity (i.e. populations moving to cities). Asymmetric compensation is neither "good" or "bad", but simply incomplete as an employment response, when overall growth potential is in question. Indeed, when economic options start to appear limited during times of economic uncertainty, one unfortunate result can be zero sum thinking among political leaders.

Today, nominal income (and speaking as a market monetarist, the associated sticky wage concept) can be thought of as primarily asymmetric compensation. However asymmetric compensation is not a Wikipedia term, I adopted it as means to explain what could also be possible in terms of economic organization. Also, this post will serve as an eventual source of material, in additional links for a glossary page. The first two posts I wrote for the intended glossary are here and here.

Asymmetric compensation shifts the focus of time coordination outward, towards broader group settings than what were possible before the widespread use of money. Where local individual to group time preferences once prevailed, they have been supplanted with time coordination on the part of institutions which organize resource capacity on specific sets of terms. Economic freedom for time use and personal choice were the fortunate result, in that employment provided options to what had often become cultural restraints born of adversity.

In the simpler structure of tradable sectors, asymmetric compensation is also easier to determine, in that it originates from revenue derived from product which is completed and sold. Whereas, asymmetric compensation in knowledge based non tradable sectors, is not as easy to determine - particularly when revenue is obtained through redistribution and financial product. As a result, skills sets have been defined through the preferences of the groups associated with specialized knowledge use, as opposed to the skills which are readily adaptable for product which exists separately from time value.

Because employment patterns are related to non tradable sector definitions of production and consumption, labor force participation is affected in ways which - to a certain extent - can be slow to respond to monetary policy. As a result, some do not believe in Say's Law (full employment potential) as a viable concept. Regular readers know that I find Say's Law important, but believe that it would benefit from a marketplace for time value as means to generate more effective monetary policy. In particular, symmetric time compensation would also be more effective than fiscal policy.

Since non tradable sectors have been slow to allow production and consumption capacity to evolve, there are times when labor force participation can suffer. Just the same: when global growth is strong, a nation's existing labor force potential often has ready backup, in terms of income and employment possibilities. Reliance on preexisting wealth to generate further employment may not problematic under such circumstance.

However: when global growth slows (as is presently the case), asymmetric compensation as the sole means of employment, can pose problems. Due to the fact it is dependent on preexisting wealth, asymmetric compensation struggles to provide stronger growth or productivity, through fiscally created jobs or compromises in (existing) corporate structure. Hence the dilemma that nations presently face.